Ladies and gentlemen, good day, and welcome to the Axis Bank conference call to discuss the Q3 FY 2022 financial results. Participation in the conference call is by invitation only. Axis Bank reserves the right to block access to any person to whom an invitation has not been sent. Unauthorized dissemination of the contents or the proceedings of the call is strictly prohibited and prior explicit permission and written approval of Axis Bank is imperative. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of the briefing session. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. On behalf of Axis Bank, I once again welcome all the participants to the conference call.
On the call, we have Mr. Amitabh Chaudhry, MD & CEO, and Mr. Puneet Sharma, CFO. I would now like to hand the conference over to Mr. Amitabh Chaudhry, MD & CEO. Thank you, and over to you, sir.
Thank you, Janice. Wish you all a very happy new year and good health. Apart from me and Puneet, we also have on the call Ravi Narayanan, Group Executive, Retail Liabilities and Products, Sumit Bali, Group Executive, Retail Lending, Ganesh Sankaran, Group Executive, Wholesale, and Amit Algave, Chief Risk Officer. The battle against COVID is not over yet. We have to keep our guards up, but we are confident we'll take this wave in our stride. We saw strong growth in the economy in the past couple of quarters. We expect this to continue, aided in part by rising consumption, spending by the government, and start of a CapEx cycle by the private sector. At Axis Bank, we looked at the disruption brought about by the pandemic as an opportunity to redraw the baseline in multiple segments.
We used this period to invest and gain market share in these areas. Our quality performance moves us forward on the trajectory we have been on in the past two years. Our asset quality taken together is best in class. We are demonstrating consistent growth across all segments with specific identified areas leading the way, and we are consolidating on our operating profits and margins. There is confidence in accelerating our progress as we look ahead. I will take you through our business performance in quarter three, and Puneet will go into the details of financial performance later. Like I mentioned earlier, the business momentum was strong in quarter three. We delivered deposit growth of 20% year-on-year and 3% quarter-on-quarter on quarterly average balance basis and added 2.15 million new customer accounts. Advances grew by 17% year-on-year and 7% quarter-on-quarter.
The growth was strong across all three segments of retail, corporate, and commercial bank. The impact of digitization and streamlined customer journeys is bearing results, and we find greater customer engagement and conversion. At 0.77 million, we achieved highest ever credit cards acquisition in this quarter. We became the second-largest merchant acquiring bank in the country, too. Our Burgundy franchise is one of the top brands in wealth management with an AUM of INR 2.67 lakh crores. We saw growth of 37% year-on-year and 3% quarter-on-quarter. Our mobile banking app is among the highest-rated banking apps on App Store, rating of 4.6, and Google Play Store, again, a rating of 4.6. We successfully executed the industry first blockchain-enabled domestic trade transaction.
We are also one of the first private banks to have gone live on the national portal of Indian customs to collect customs duty payments. We also successfully concluded structured derivative transactions under the new RBI regulations. Our asset quality is top-notch. Provisions and credit costs further declined in quarter three on year-on-year and quarter-on-quarter basis. The balance sheet buffers are at an all-time high. Margins improved 14 basis points quarter-on-quarter, and fee income grew 15% year-on-year and 3% quarter-on-quarter. The combined nine months FY 2022 PAT of our domestic subsidiaries stood at INR 872 crore, higher than full year FY 2021 earnings. Our operating profit grew by 17% year-on-year and 4% quarter-on-quarter. PAT was up 2.4% year-on-year and 15% quarter-on-quarter.
We continue to make significant investments in building digital and tech capabilities, invest in new age talent, and work on transformation projects across our businesses. Our near-term costs remain slightly inflated because of this. We are at the back end of this investment cycle now. We are seeing the returns on these investments flowing through gradually but surely. I'll take you through the business performance of key segments now. On the liability side, we continue to build granularity and focus on premiumization. CASA deposits on a QAB basis grew faster at 25% year-on-year and 7% quarter-on-quarter. The CASA ratio stands at 44%. Last year it was 42%. Customer acquisition was strong on back of implementation of our key transformation projects. I have already mentioned 2.15 million new liabilities accounts opened in quarter three, up 29% year-on-year.
Total 6.2 million accounts have been opened so far in the nine months, up 28% year-on-year. 1.76 lakh savings accounts were opened via digital V-CIP compared to 1.22 lakhs in quarter two, up 44%. 37% year-on-year and 9% quarter-on-quarter growth in new current account customers. We continue to focus on deepening relationships across the government business. During the quarter, we signed MOUs with the Indian Army, Indian Navy, Kolkata Police, and Maharashtra Forest Department, among others. Our focus on premiumization continues with 67% year-on-year and 8% quarter-on-quarter growth in QAB balances for Burgundy and Burgundy Private accounts. The consolidated wealth management business has grown to be the fourth largest in India, in a reasonably short period of less than three years.
The evolution of the Burgundy franchise is a great example of the strength of our One Axis approach to serve our customers by bringing the bank and its subsidiaries as a single unit to offer a range of solutions. Burgundy customers have grown at a compounded annual rate of 22%. As of December 2021, we have 1.9 lakh Burgundy customers spread across India and other countries. The Burgundy AUM at INR 2.7 trillion has grown at a compounded rate in excess of 27% over the last three years. On credit cards and payments, I've already mentioned we added 7.77 lakh cards in the quarter three. This is the highest ever for any quarter and up to 174% year-on-year and 40% quarter-on-quarter.
There are more strategic partnerships that we're entering into, and we see better risk and spend performance in this portfolio. Also, our organic growth has been strong on the back of new liability account growth that we have seen. A significant portion of this growth today is also driven by the advanced rule engines built by the analytics team. 40% of credit cards were acquired through known-to-bank partnerships across Flipkart, Google Pay, Freecharge, and others, up from 21% in financial year 2021 and 6% in financial year 2020. We have 1.72 billion Flipkart Axis Bank credit cards in force, making it one of the fastest growing co-branded portfolios since its launch in July 2019. The credit card spends in quarter three were up 52% year-on-year and 22% quarter-on-quarter, faster than industry and now trending well above pre-COVID levels.
The card advances were up 10% quarter-on-quarter. We are also now the second-largest merchant acquiring bank in the country with an installed base of 8.42 lakh terminals. We have gained an incremental market share of 42% till now this fiscal. The merchant business is another example of the One Axis approach with innovative offerings to grow the business across deposits, lending, and fees. We are the first bank to lead with a feature-rich and pocket version Android terminal for retailers. We are building a network of partners also to grow this business. On advances and disbursements, loan growth was strong at 17% year-on-year and 7% quarter-on-quarter, led by strong all-around performance across the business segments. The overall loan book continued to trend upwards sequentially for the sixth consecutive quarter. The risk parameters continued to trend down during this period.
The corporate loan book grew 13% year-on-year and 7% quarter-on-quarter, as our domestic loans picked up 7% year-on-year and 8% quarter-on-quarter. Mid-corporates, our area of focus, was up 44% year-on-year and 17% quarter-on-quarter. The growth in the corporate segment is spread across different sectors, driven primarily by organized retail, engineering, petrochemical, industrials, and real estate. The retail and SME segments continued a strong sequential uptrend for second straight quarter, growing at 18% and 20% year-on-year and 6% and 9% quarter-on-quarter basis respectively. The Bharat Banking focus is working well. Bharat Banking segment delivered a strong 56% year-on-year and 50% quarter-on-quarter growth in disbursements in quarter three. We witnessed one of the best quarters in terms of gold loan disbursement also. Moving on to tech transformation and digital banking.
I've mentioned in the past calls about the transformation of our technology stack. Our 1,500+ tech and digital colleagues are working on 30+ initiatives that are transforming the core and building future-ready capabilities. We now go live with 25+ new tech or digital capabilities every quarter on the back of this initiative. On cloud, our leadership continues. We have established the largest VDI setup in Indian banking with 2,300+ virtual machines. We already have 55+ of our critical applications on cloud, and the migration is getting quicker every quarter. On APIs, the bank is committed to its open ecosystem proposition to build dedicated partnerships using our market-leading API strategy. We have deployed more than 300 APIs across retail and corporate channels. Switching on digital business this quarter, in consumer loans, digital lending grew 33% quarter-on-quarter.
It contributes upwards of 52% to key product lines such as personal loans. Axis is among the first banks to go live on the account aggregator framework. The first for us to go live are auto loans and personal loans. With international travel reviving a bit in quarter three, our digital Forex card issuance saw good growth. In quarter three, digital contributed 40% to overall FX card sales. Digital investment and wealth journeys continue to see strong growth, with digital AUMs in nine-month FY 2022 growing nearly 2x year-on-year. We launched a new digital savings account aimed millennials that offers digital-rich features and 10%-15% cashback for purchases on the leading e-commerce platforms. Our D2C savings account acquisition saw a growth of 50% this quarter as a direct result of this new digital savings account.
We also witnessed best-ever monthly active users on our mobile app this quarter. On WhatsApp, we crossed similar ratio of users in quarter three. Last quarter, I spoke about Project NEO that aims to build a world-class corporate digital bank. We have made strong progress, and we expect the first journeys to be in beta phase in quarter four. On UPI, our market share stood at 15%, and we managed more than 22 million transactions daily with minimum rate of technical decline for regular transactions. We now have 5.4 million non-Axis Bank customers using our Axis Mobile and BHIM Axis Pay apps. A few updates on our progress on ESG strategy that we outlined last quarter.
During the quarter, we entered into a $300 million loan guarantee program with GuarantCo towards accelerating the e-mobility ecosystem in India. This program that was announced during COP26 event in Glasgow will also support our commitment of incremental financing will be INR 30,000 crore to sectors with positive social and environmental outcomes by financial year 2026. The bank also won the award for best sustainability-linked bond issued by a financial institution for its $600 million sustainability-linked bond issuance in September 2021 at the recently announced The Asset Triple A Country Awards. In closing, we continue on steady upward movement on business and financial metrics across all the lines of businesses, along with the positive cultural changes in the bank. We have made significant investments in technology, digital and multiple business transformation initiatives.
This has meant a near-term rise in costs, but has set us on the right trajectory to deliver on our GPS strategy. We are optimistic and confident about our future. I will now request Puneet to take over.
Thank you, Amitabh. Good evening, ladies and gentlemen. Thank you for joining us this evening. I will discuss the salient features of the financial performance of the bank for Q3 FY 2022, focusing on our operating performance, capital and liquidity position, growth across our deposit franchise and loan book, asset quality restructuring and provisioning. Our operating performance is robust. Improvements are reflected in mainly continued build-up of granular fees and our NII growth. Net interest income for Q3 FY 2022 stood at INR 8,653 crores, representing a YoY growth of 17% and a QoQ growth of 10%. NIMs for Q3 FY 2022 stood at 3.53%, increasing sequentially by 14 basis points and declining six basis points YoY.
The same quarter last year, we had interest on income tax refund aggregating to INR 153 crore, contributing eight basis points to the net interest margin. Adjusted for this, the year-over-year NIM grew by two basis points. Improvement in NIMs over the medium term will be driven by balance sheet mix shift from investments to loans. Within loans, the corporate segment and product composition towards better yielding assets. Continued improvement on low-cost deposit base and quality of our deposit franchise and reducing share of low yielding RIDF bonds currently standing at 3.8% of our assets. The improving liability franchise has resulted in cost of deposits declining by 49 basis points year-over-year and nine basis points quarter-on-quarter. The bank has been improving the risk profile of its loan book.
Our NII as a percentage to average risk-weighted interest earning assets stands at 7.25%, improving 39 basis points YOY. Net interest income for Q3 FY 2022 stood at INR 3,840 crores, representing a YOY growth of 31% and a sequential Q-on-Q growth of 1%. Our fee income stood at INR 3,344 crores, growing 15% YOY and 3% Q-on-Q. 92% of the fee is granular, 65% of fee, of our fee is from the retail business and the balance from the wholesale franchise. The fee for the quarter is after giving effect to some customer-focused actions taken by the bank, including reducing fees across many charge types, mainly in the retail liability area.
The reduction in fee is the long term, but we do believe that it is the right thing to do as we build a sustainable franchise. Fee from cards grew 21% YOY and 8% Q-on-Q. Fees on third-party distribution grew 33% YOY and 13% Q-on-Q. Fees from our digital channels grew 20% YOY and 3% Q-on-Q. Our operating expenses for the quarter stood at INR 3,631 crores, growing 25% YOY and 10% on a sequential quarter basis. Staff costs increased by 16% YOY and remained stable, Q-on-Q. We added 9,250 people from the same period last year, mainly in our growth businesses and technology. We have continued to maintain the Social Security code provisions.
Other operating expenses grew 30% year-over-year and 15% quarter-over-quarter, mainly attributed to higher business volumes, higher collection expenses, IT expenses and statutory costs comprising PSLC and DICGC premium being higher. The year-over-year increase in INR crore operating expenses can broadly be attributed to the following reasons. 24% of the increase in expenses is volume linked. 41% is attributable to investing in the future growth of the franchise and technology. 21% is attributable to collection expenses, COVID expenses and statutory expenses, and the balance 14% is BAU growth. The sequential quarter-over-quarter increase in INR crore expenses can be attributed on a very similar pattern. 21% to volume growth, 50% for future growth and technology spends, 8% is attributable to collection expenses, COVID expenses and statutory, and 21% to BAU expense growth.
Operating expenses to average assets stood at 2.15% for Q3 FY 2022, higher by 19 basis points YOY and three basis points on a sequential quarter basis. Operating profits for Q3 FY 2022 is INR 6,162 crores, growing 17% YOY and 4% Q-on-Q. The bank has not utilized any of its COVID provisions in the current quarter. Provisions and contingencies for the quarter were INR 1,335 crores, declining 64% YOY and 23% Q-on-Q. 61% of the NPA provisions on loans for the quarter are from specific provisions towards aging of assets recognized in previous quarters. Annualized credit costs for Q3 FY 2022 is 0.44%, declining by 268 basis points YOY and 10 basis points QOQ.
Tax stood at INR 3,614 crores, growing 224% YOY and 15% QOQ. Annualized Q3 FY 2022 ROE stood at 14.19%, improving 928 basis points YOY and 147 basis points QOQ. Nine months annualized ROA and ROE stood at 1.12% and 12.1% respectively. The strength of our balance sheet is reflected through the cumulative non-NPA provisions at INR 13,404 crores, comprising of COVID-19 provisions of INR 5,012 crores, restructuring provisions of INR 1,569 crores at first bucket NPA rates, weak assets and other provisions at INR 6,823 crores. The standard assets cover, defined as all non-NPA provisions by standard advances, stands at 2.03%.
Our provision cover, defined as all provisions NPA plus non-NPA divided by GNPA, stands at 150%, improving 1,406 basis points year-over-year and 576 basis points quarter-over-quarter. The bank is well capitalized and is carrying adequate liquidity buffers. Our total capital adequacy ratio, including nine m onths profit, stood at 18.72% and our CET1 is 15.33%. The bank called back INR 3,500 crore of Tier One capital. We've reflected the regulatory approvals during the quarter. The impact of this call back to Tier One capital is 50 basis points. The proven COVID provision of INR 5,012 crore translates to a capital cushion of 63 basis points over and above the reported regulatory capital adequacy ratio.
Our average LCR for the quarter was 113% and our excess SLR was INR 82,935 crore. The RWA of the bank at the 31 December 2021 stands at 63% compared to 66% as at December 2020. The improvement in RWA percentage is reflective of the quality of business being done by the bank. Growth across our liabilities and loans franchise. Amitabh discussed the strong progress made on the liabilities franchise in his opening remarks. I would request you to please refer slides 7-10 of our investor presentation for further details. Our overall loan book grew by 17% YOY and 7% sequentially. Our loan book continues to remain balanced, with retail advances constituting 55% of overall advances, corporate loans at 35% and CBG portfolio at 10%.
The retail book represents healthy characteristics with 80% of the book being secured. Domestic retail loans grew 18%, led by secured products like home loans, 20% year-over-year growth, LAP 28% year-over-year growth and small business financing 51% year-over-year growth. Retail disbursements grew 37% year-over-year and 19% sequentially. Disbursements to unsecured products continued to grow, with personal loan disbursements growing 39% year-over-year and 15% quarter-over-quarter. We are progressing well in our endeavor to build a profitable and sustainable corporate bank. The wholesale book grew 13% year-over-year and 7% quarter-over-quarter. Details of rating composition, incremental sanction quality is set out on slide 28 of our presentation. We continue to have strong positioning in NEFT and RTGS payments with a market share of 8% each. The offshore assets grew 44% year-over-year.
The growth in our overseas corporate loan book is primarily driven by our Gift City branch exposures. 94% of the overseas standard corporate loan book in Gift City branch is India linked and 91% is to A-rated corporate and above. The commercial banking business grew 20% year-over-year and 9% quarter-over-quarter. The commercial banking card deposits on a quarterly average balance basis grew by 15%. The overall fees from CBG increased 14% year-over-year. CBG customers contributed to 19% of our Burgundy franchise. Each of these reflects the strong quality of the relationship-led franchise that we are building in this segment. Our ECGLS share is low, dominated by ECGLS 1 and 2.
Asset quality metrics in the CBG segment have held up very well, with net slippages of just INR 40 crores, negligible restructuring and substantially improved PCR in the segment at 74% as of December 2021 versus 52% as of March 2020. Coming to the performance of our subsidiaries. Detailed performance of our subsidiaries is, like, set out on slides 55-62 of the investor presentation. The One Axis strategy is playing out well. The domestic subsidiaries reported a net profit of INR 872 crores for the nine months FY 2022, up 61%. This translates into a return on investment of 64% on a standalone bank basis. The subsidiaries' profit now accounts for 8% of the consolidated profits and accrete nine basis points to consolidated ROA and 84 basis points to the consolidated ROE.
Axis Capital continued to maintain its leadership position in AC-ECM, completed 43 transactions in the nine months FY 2022. Axis Finance is built out. The build out of the retail franchise is on track with the retail book growing 3.6 times YOY and now constituting 29% of the overall book as compared to 13% a year ago. Axis Finance's book quality continues to be strong, with near-nil restructuring and net NPA of 0.9% and an ROE of 19.8%. Axis Mutual Fund overall quarterly average AUM grew 43% YOY in Q3 FY 2022. Its overall average AUM market share in Q3 FY 2022 stood at 6.6%, up from 6% in Q3 FY 2021. Axis Securities during the quarter added 0.13 million customers, up 47% YOY.
Its ROE for the nine months FY 2022 was 43%, up 90 basis points on a year-over-year basis. Asset quality, provisioning, and restructuring. Overall asset quality has been improving sequentially for the bank as we had indicated last quarter. The GNPA, NPA, PCR ratios of the bank and segmentally for retail, SME and corporate are provided on slide 45 of our presentation. GNPA percentage was 3.17%, improved 138 basis points year-over-year and 36 basis points quarter-over-quarter. The net NPA was 91 basis points or 0.91%, improving 29 basis points year-over-year and 17 basis points quarter-over-quarter. Our PCR is healthy at 72%, improving 136 basis points quarter-over-quarter. The gross loan slippages for the quarter were INR 3,332 crores, lower than Q2 FY 2022 by 38%. Retail gross slippage has declined 44% quarter-over-quarter.
Gross loan slippage ratio for the quarter stood at 2.08%, improving 304 basis points YoY and 131 basis points QoQ. Net loan slippage for the quarter was an absolute INR 97 crores, down from INR 676 crores in Q2 FY 2022, and a decline of 86% QoQ and 98% YoY. Net loan slippage in Retail were negative in the quarter. For the Commercial Banking Group, it was INR 40 crores, and for the Wholesale Banking segment was at INR 151 crores. The net loan slippage ratio for the quarter annualized to 0.06%, improving 380 basis points YoY and 38 basis points QoQ.
In addition to loan slippages, the bank has classified during the quarter INR 812 crore of pass-through certificates rated triple A as at 31 December 2021 as NPI. The originators of the retail pools underlying the PTC had requested the banks for permission to grant moratorium to the underlying borrowers, to which the banks had consented in accordance with the PTC terms. Since the PTC is an investment and not a loan, a technical position has been taken that moratorium could not be granted and hence these PTCs have been classified. The bank has recovered in FY 2022 an amount of INR 764 crore from these pools, and none of these pools are overdue after factoring for moratorium. We do not expect any loss from these pools. 21% of the outstanding will be further repaid in FY 2022.
58% will be repaid in FY 2023, and the last 21% will be repaid in FY 2024. Provisions in the quarter against this slippage, which aggregates to INR 203 crore and it translates to 11 basis points on credit cost, has been charged to the P&L for the quarter. Net slippage ratio at the bank level on an annualized basis is 0.55%, improving 346 basis points YOY. Incremental implemented COVID restructuring during the last reporting period was INR 287 crore. Total outstanding restructuring under COVID one and two in aggregate stands at INR 4,453 crore and is 0.63% of gross customer assets. Overall provision cover on restructured loans stands at 24%, with 100% provision on unsecured retail loans.
The double B and below pool at the bank declined sequentially. More details on double B and below pool and restructuring are provided on slide 46 of the investor presentation. As I close, we summarize that the bank's journey so far and the broad outlook on key performance drivers. Our balance sheet resilience is visible through strong capital adequacy, legacy NPA issues being behind us with net NPA at 0.91%, limited COVID restructuring at 0.63% of DCA and provisions by GNPA at 130% and gross NPA ratio at 3.17%. Consistency and quality of granular liability growth is visible. The average CASA balance to average deposits ratio has improved to 44%. Growth is healthy in our granular businesses, both secured and unsecured.
focus on growth segments in wholesale, comprising SME, mid-corporate, which will better RAROC, continue to grow faster at 20% and 44% respectively. In the nine months FY 2022, domestic subsidiaries have exceeded full year profits for the last financial year. In Q3 FY 2022, the delivered NIM is better than the guidance given last quarter. We maintain that Q4 FY 2022 NIMs will be better than the NIMs we forecasted in H1 and should be in the range of 3.45%-3.5%. We will continue to invest in the franchise. We expect to exit FY 2022 at a 2.20 cost to assets ratio, higher than our earlier estimate. We stay committed to our 2% cost to assets target on an FY 2023 exit basis.
The intensity and impact on lives and livelihoods, length of time of COVID wave three and resultant government policy actions remain a key monitorable. We would be glad to take your questions now. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Elara Capital. Please go ahead.
Hello. Congratulations. My first question is on operating expenses. You shared a fair bit of detail, but on operating expenses for the quarter, could you share what percentage of OpEx is tech spend?
Mahrukh, thank you for the question. The way to think about it is our technology spend to total OpEx will be in the range of 7.8% or 8% of total expenses for the bank.
Okay, thank you. My next question is on credit costs. Of course, asset quality has been very good and your credit costs have declined substantially. What is the outlook from here on, assuming that you of course have a normalized range of credit costs, but would we see credit costs lower than normal in the short term, given that you've already provided a lot in the earlier quarters?
Mahrukh, we don't provide a specific guidance on credit costs. As I have previously said, the way to think about credit costs for Axis Bank is we have a longer-term average credit cost that the bank has. There are pluses and minuses to that long-term average. The lumpiness of the wholesale business has disappeared. Therefore, from the long-term average, given the quality and the granularity of the wholesale business we have built out, the credit costs should move down. We have moved our PCR percentages, which is the provision cover on the rule engines we now operate by 16%-20% higher than where we used to previously operate. In the long-term average, we used to operate at a PCR of 50%-55%. Our rule engines are now resulting in a PCR of 70%, thereabout.
You need to factor the incremental provisioning, at least in the short term, in terms of how you think about our credit costs. Lastly, we have articulated that we feel comfortable growing our retail unsecured book. It will give us better yields, but it will accrete to credit costs. On a risk-adjusted basis, that book will continue to be profitable and additive to the bank. An amalgamation of these four factors is how I would request you to think about our credit cost outlook as we move forward. We don't have a specific guidance that we put out.
Thanks a lot. I have one last question, which is slightly long-term, when you think of M&A, what would be your actually medium-term ROE outlook? When you think of M&A, which is kind of big for your balance sheet size, what will be the ROE, the maximum ROE dilution that you'll be comfortable with in the short term? What would be your medium-term target and how do your M&A plans fit into that?
Mahrukh, I have previously called out the fact that our aspirational ROE target is 18%, and we have visibility that I have called out in the past to 16.5%, so I stay true to those statements. In terms of our M&A strategy, I would simply say that the way we think about M&A is capability, and we will evaluate opportunities, individual opportunities as they present themselves. There is no framework that I can offer to you that a given structure on ROE is what will be acceptable or not. There are many aspects that go into an inorganic acquisition or an M&A activity. One of it is financial. We will be cognizant of all variables as we make choices in future.
Thanks a lot. Thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your question to two per participant only. You may rejoin the question queue if you have a follow-up. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.
Congratulations. Two questions. Firstly, in terms of the OpEx, even though it was covered, but when we look at it, maybe in terms of the future and related to digital agenda, what would be the nature of that? Because the sequential uptick also you mentioned like 40% is coming in from there. Is it more related to acquisition? What would be the nature of those incremental OpEx? That's the first question. Second is in terms of the movement of double B and below, if you can give, if there are any slippages coming in from there. What would be the upgrades in that entire segment wherein double B and below has actually come off?
Yes, Kunal, thank you for your questions. I think, on the digital agenda, we have some multiple unique digital properties that we continue to build. Amitabh, in his opening comments, spoke about open as an architecture and the integration that we are looking to do with all of our partners. We are working on end-to-end digital journeys, both on the retail and the corporate side. We have the NEO Bank initiative that is running in parallel. Plus we are incurring expenditures in hollowing out the core, moving a lot of our technology stack to the cloud. So the tech investments is both around ensuring that we have a resilient operating franchise and building for the future. Therefore, those investments are likely to continue in the foreseeable future, insofar as the bank is concerned. I wish-
Sorry, just to interrupt. As you mentioned, this will continue as well, but maybe the intensity would also be similar in terms of the increase or we are done with the larger part of it. It's been front-ended and now it should come off a bit.
Yes, Kunal, the way I would address that question is instead of speaking specifically on technology spends and how they will play out, I think technology is an evolving field. It will need continuous investments. I would rather leave you with an overall comment on costs. What we feel reasonably comfortable on is on an FY 2023 exit basis, we should revert to our 3% cost to assets number that we have previously demonstrated is reachable for us.
So
The mix of the spends may continue to change, but you will see a moderation in overall cost to assets.
Sorry, Puneet. I'll just add, Kunal, Amitabh here. You know, we have close to 18 large projects which are being managed directly by our management committee members. When you think about costs, as the benefits of these projects start flowing through, they obviously speak to your expenses too, because then you can drive more volumes, hopefully with better productivity and, you know, lower customer acquisition costs. You get that benefit, but at the same time, it also gives you the leeway and headroom to continue to invest in digital technology, transformations, analytics and stuff like that. We're trying to balance both and based on whatever we see today is the kind of guidance which Puneet is giving to you. I hope it gives you some better insight.
Sure. Yeah. Thanks.
Thank you.
The second question. Yeah.
The second part of the question, the slippage from the double B pool was INR 800 crores. It includes one technical slippage of INR 160 crores, which is downgrade and upgrade in the same quarter possibly. The upgrades from NPA to double B pool is INR 355 crores, and all other downgrade plus balance reduction movement would be the balance INR 194 crores.
Sure. Yeah. Thanks. Thanks a lot.
Thank you. The next question is from the line of Gaurav Kochar from Mirae Asset. Please go ahead.
Yeah. Hi, good evening, and congrats for a good quarter. Just wanted to raise a little more on the other OpEx part. If I look at other OpEx to total income, it was at around 35% this quarter. If I look at One Axis, it was at 30%. If I look at other banks, the other large private banks, their the other OpEx to total income has been in at around 24%-25% mark. If you look at Axis Bank, you know, FY 2017 to FY 2021 other OpEx to total income, it is already, you know, at 28%-29% on an average.
Just wanted your thoughts that, I mean, we have already been spending between FY 2017 to FY 2021, spending 400 basis points higher than, you know, the peers, the large peers. What, I mean, in terms of now, the that gap has increased from 400 basis points to almost 800, 900 basis points. What has been these spends for, you know, given that historically also we've been spending more than peers on this, per rupee earn. And when do we see, you know, the bank reaching at 25% mark, in line with the other large peers? That was the first question.
Gaurav, thank you for the question. I think, maybe I will dimension it differently for you and then answer your question directly. There are two variables that we can look at from an expense ratio perspective. One is cost to assets, and the second is the cost to income. Okay. The cost to assets number is being steady, and the growth that you have seen in our cost to assets, give or take, what we see from peer, larger peer bank competition, we are in the same range, both on a relative shift as well as the absolute number that we are operating at. Yes, there's been a cost escalation for the large banks between five to eight basis points. We are at eight basis points. Some other banks may be at five.
We're not really seeing any divergent cost escalation with assets as the denominator, whichever way we look at it. The metric that you are comparing is cost to income. Now, there will be multiple impacts on the income of the bank, and especially since you've looked at a time series. For example, we chose not to restructure, therefore we had the higher interest reversal impact that came through on the income line. And we ourselves have called out the fact that there is a new improvement journey that we need to undertake. There is an income effect that is playing out in the ratio that you're looking at. While all franchises continue to invest, our ratio of other OpEx to income looks higher.
As both OpEx moderates to the 2% cost to assets, and my earlier commentary on the call saying we have a new trajectory that we are working towards, you should see positive traction on that number, assuming that we are able to deliver both the statements that we have made in the course of this conversation. My request is please, for the moment, stay focused on cost to assets, because that's the variable we are focused on in driving our business.
Sure, sure. Even if I look at cost to assets, some of the peers have seen moderation in cost to assets. The larger banks have seen cost to assets moderating for them. Even if I compare the absolute delta, maybe from a longer term time series, FY 2018 to FY 2021 or nine months FY 2022, the cost to assets for us hasn't gone down as much as for the peers. If I were to, you know, look at it the way you are saying. Even in that case, the point remains that the other OpEx seems to have been higher versus peers for a long period of time. Is it only tax spends that you would attribute it to, you know, for the last three to four years?
Gaurav, again, I think maybe we probably need to look at the numbers in a little more detail.
Sure.
I mean, if I was just to offer you a comment, again, I will go to total cost rather than other topics to total assets. The reason I will go to total cost very simply is the staffing mix of different entities could be different. Okay. That could cause one differentiation when you pick up only one element of the cost structure. In-source versus outsource. In-source will sit in staff, outsource will sit in other OPEX. There have been certain conscious calls that we have made, for example, Social Security code, the bits that we have taken ahead of peer set, which will be sitting as part of our expense number escalation. I think there are nuances to it.
At least our reading of the numbers is we are in a tight range on an incremental cost to assets of five to eight basis points, with the exception of one large private bank, and we're not seeing a very large differentiation being called out in incremental expenses. That's how we see it. Like we said, we continue to remain focused on getting the cost to assets back to 2% on an average basis in FY 2023. If we are able to achieve that, you will see moderation in the ratios that you have just called out.
Sure. That's helpful. Just next question on if I look at absolute borrowing, that is up around INR 20,000 crore sequentially. If I look at the CD ratio, that is up 200 basis points, but it is still down from pre-COVID levels of 90% that we used to have. If I look at LCR, it's still around 113%. If I look at excess SLR that you have disclosed in the PPT, that stands at INR 82,000 crore. Any reason for this incremental borrowing? Is it locking fixed-rate borrowings in anticipation of a rising rate environment? Is that how we should see it?
Gaurav, this is a mix of three things. First is we've raised long-term infra bonds, which has contributed to increase in borrowings. They are tactically a good instrument to have. They don't attract some of the regulatory prescriptions, don't attract a hit in the NSFR computation. Second will be a period impact because what you're seeing is a point-in-time number, not the average number. Three is structurally as the balance sheet grows, we could have used borrowings to balance out the balance sheet. The other reason on an overall basis is you will notice that our foreign currency trade book has gone up, and that is typically aided by offshore borrowings. As that book increases, which is short-term in nature, you will see an impact play through in borrowings.
It's an amalgam of these four factors that have resulted in the borrowings increase. I think it is the normal course of business. Nothing exceptional for me to call out for you.
Perfect. Perfect. Just this last question, if I can squeeze in.
Excuse me. So sorry to interrupt. May I please request you to rejoin the queue for your follow-up, as we have many people waiting for their turn.
Sure, sure. Thanks.
Thank you. Before we take the next question, a reminder to all the participants again. Please limit your question to two per participants only. The next question is from the line of Sumeet Kariwala from Morgan Stanley. Please go ahead.
Yeah. Hi, Amitabh. Hi, Puneet. Congratulations on really good set of numbers. I have this question on LCR, which is moderated to 113% versus 120% last quarter. Just wanted to understand what's driving this. If I look at your deposit, that's quite decent, but I think so maybe it's to do with term deposits where quite a bit of growth has come from the wholesale side. So that's one. Second is something that you're trying to do on the overseas loan book. Is that also weighing on LCR? And third is, even on CASA, is there some growth which is coming from the government side and it has higher runoff rate, and this is why LCR is not accretive. So just some thoughts on that. Thanks a lot.
Thank you for your question. We have discussed the quality of our liability and the journey that we are on the quality of our liability franchise build-out. Many parts to your question. Let me address each part. In our investor presentation, we have called out the government SA growth is at 49% YOY. It is of a smaller base than retail SA, but it has grown at a healthy pace, and it has a outflow profile that is slightly different from pure retail SA. Yes, your question that it will have an impact on LCR does exist, but overall that liability is profitable and deployable, just given the cost of funds at which it comes through from a bank standpoint.
It is accretive to the business, may not be accretive to LCR from a long-term 8- to 12-quarter journey that we've spoken of in improving our LCR profile in terms of outflow. The second part of your question on the moderation of the LCR from 120 average to the 113% number, it is a function of both asset growth picking up and therefore redeployment from investments to assets. That is primarily one of the causes for the LCR to moderate. You're also seeing the commensurate benefit come through on yields. Overall, we continue to remain focused on getting the quality of our liabilities right. The journey is ongoing. I have previously said it is an 8- to 12-quarter journey, and we will see progress thereof. Those are the reasons why the LCR has currently moderated.
We remain focused on improving that number as we move forward.
Thanks, Puneet. Second question is on corporate loan growth. There's some recent pickup this quarter. You talked about SME, the corporate doing well and those being your focus segments. Large corporate also did well this quarter. Should we expect that to sustain? Any thoughts on that?
Ganesh, go ahead.
Hi, this is Ganesh here. I think we, as we said earlier, are focused on growth only on the chosen segments, so our performance is a reflection of our staying on that journey, as already articulated by Amitabh and Puneet. I think we have seen good growth in mid-corporate. We just shown a handsome growth CBG, which is our one segment below the mid-corporate. We are also seeing some pickup in working capital utilization as economic activity is coming back, a small improvement over there. Across the board we are seeing credit uptake across renewables, across roads, across industrials, chemicals, disbursements coming back in NBFCs and the like. We believe that, when we stay this course, we are quite optimistic about sustaining the growth.
Got it. Very clear. Thanks a lot. That's from my side.
Okay.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal Securities. Please go ahead.
Yeah, hi. Thanks for the opportunity, and congratulations on good results. My question is on the provisions that we are having, like, almost INR 134 billion. When do we really plan to utilize the COVID provision? Like COVID wave one and two, we have seen the impact and book has been doing pretty fine. When do we really plan to use the COVID provisions and or the outlook on the rule-based provision also that we do?
Nitin, thank you for the question. If you break up the INR 13,000 crore provision, the INR 5,012 crore is the COVID provision. The outlook that we have is it's purely prudent. It is not reflective of underlying risk on the book as we see it. To your question on utilization, our current assessment is that there is a risk model that we have, and as a consequence of the risk model, the prudent provision continues to stand. We do not expect it to utilize that provision basis the results of our risk model in FY 2022. On a longer term basis, directionally, we believe that we would carry this provision structurally forward till it strengthens the balance sheet, then utilize it even post-COVID. The balance provision of the INR 8,000 crore that we have is entirely rule-based.
As the underlying asset quality improves or deteriorates, the provisions will get released or topped up on our financial statements. That's the overall outlook on the INR 13,400-odd crores of provision that we have.
Puneet, just on that, like, this quarter also we have made rule-based provisions. Am I right? Because, like, the asset quality is pretty much, I think very strong this quarter, what we have reported as such overall. Still we have made. When will really be the scenario that you stop making or, like, draw down on these rule-based provisions then? What sort of slippages will that level be?
In fact that is the beauty of the rule-based provision. In fact, in my opening comments, I had specifically called out a number which was a large part of my provisions for the current quarter are on account of flow forward provisions from prior periods. i.e., an NPA was recognized in the prior period, and illustratively under the rule it got provided, let's say 50%. Because of lapse of time, the provision moved from 50% to let's say 75% in the current quarter. The 25% provision that we topped up by the rule engine has come and hit the P&L.
Like I said, if this asset gets resolved, which is there is either a recovery or upgrade, the provision will automatically end up getting released into the P&L, which is the reason why you're seeing zero net slippages or near zero net slippages, but a provision come through on the P&L. It just continues to work better on TCR and continues to strengthen the balance sheet. We feel very happy with the rules that we currently have.
Right. Two data points if you can share, like, how much NPL aging provisions have you made this quarter, given higher slippages that we experienced a year back? Secondly, what are some of the, say, largest ticket sizes in the BB and below pool? Average we have disclosed, but what are some of the larger sizes that we have there?
Effectively from a BB pool absolute size, I have always said that there is, with the exception of one non-fund based facility, there is no four-digit crore exposure left in the BB pool. The average is a fair reflection. There are no outliers in that pool as compared to the average number is what I would call out. To your question on what part of the cumulative provisions for the quarter was flow forward, 61% of the NPA provisions were on account of look-forward. If I was to dimension the number for you, we give the break up of the provisions. Just give me a second. I'll tell you the slide number of the presentation. We give a break up of our provisions in slide 47 of the investor presentation.
Loan loss provisions are INR 790 crore. 61% of that provision would have come from prior period look-forwards.
Okay. Sure. Thank you. Thanks so much, and wish you all the best.
Thank you. The next question is from the line of Adarsh Parasrampuria from CLSA. Please go ahead.
Yeah, hi. Just if you can give the walkthrough that you gave for the quarterly increase, the YoY increase in other OpEx any time during the call, we'll really appreciate. A INR 5,000 crore number is up to INR 6,300 crores. So if you can walk through that rather than quarterly, it'll help. Actually just taking what you have guided to, you know, to 0.2% in a year, just trying to clarify, did you mention it's the exit number that you would target for FY 2023?
Sorry, Adarsh, I seem to have lost you on the question that you were trying to.
I was asking firstly if you can give a walkthrough for the other OpEx on a more YoY basis rather than QoQ at any time during the call if possible. The second thing was, when you mentioned the 2.2% number, on cost going to 2%, was there a guidance for an exit FY 2023?
Yes. FY 2023 exit was 2%. That is the directional comment I made. To your YOY number, if I look at the YOY cost increase, 24% of the YOY cost increase is volume-based. 41% of the YOY cost increase is related to investing in future growth, of the franchise and technology. 21% is attributable to collection expenses, COVID expenses, and statutory expenses. Statutory expenses comprise CSR, PSLC and DICGC premium. 14% is organic BAU expense growth on a YOY basis.
Got it. Perfect. This is helpful. Thanks.
Thank you. The next question is from the line of Rahul Maheshwari from Ambit Asset Management. Please go ahead. Mr. Maheshwari, you may please go ahead with your question.
Am I audible?
Yes, sir. You are audible now.
My two questions are there. First, as in the opening remarks you had mentioned about the 30 new digital initiatives that has been charted out by the Axis Bank, can you give some insights into the what are the metrics that is helping you to chart out the what is the output that is coming, whether in terms of the market share or whether in terms of cross-sell stickiness, volume growth? Second, question was more about that no doubt every segment is firing for you, but can we expect that going forward as the project finance and the private CapEx starts taking place, the growth rate into the corporates will mirror the kind of growth rate that would be planning that is being seen into the retail segment also?
As far as the digital part is concerned, you know, we are working on our digital bank across three things. One is we are trying to see what kind of customer propositions we can take to our customer. Second is, what we can do about digitizing the bank itself. And third is what we can do about digitizing all the customer journeys for every product and service I take to the customer.
When we talk about 30+ initiatives, it is across all these three businesses. For example, digital bank might be working and leading the project on Project NEO. This is a project which I mentioned as part of my remarks, and obviously, IT will also be involved, business also will be involved, but it is a digital bank which is driving the project from the front. On the other side, banking might be involved in completely revamping our mobile site. By the way, we're gonna launch a new version of our mobile app in this quarter, and they will be working on that too.
They might be coming out with some very specific new product offering, or they might be working on some specific APIs which will allow us to you know, embrace a completely new partnership. It varies across the focuses of these three areas. We have a certain principle on the basis of which we decide how do we wanna engage and manage these projects, and that's why the number of these projects has gone from very few to now close to 30 such initiatives. On the loan growth, you mentioned if the private CapEx picks up. Well, as I said, that if the opportunities are there for us at the right price within our overall risk framework, we are gonna be aggressive, and we are gonna grab those opportunities that come our way.
It's not just for loan growth, it is for bringing the entire wholesale bank and Axis Group to those companies. So we are not going to stop at loan. We're gonna go for all the wholesale banking products. We're gonna go for capital raising. We will try to see if we can do some business on the Axis Finance side if promoters need support and so on and so forth.
Amitabh, just follow up on this thing, Amitabh, definitely we have seen quarter-on-quarter improvement. The kind of quality of delivery that has started taking place, how confident or can we expect such kind of consistency or sustainability to maintain? I'm not asking for numbers, but a directional view would be very helpful.
If there are no disruptions in the economy, and if it continues at the current pace, you should expect something similar from Axis.
Okay. Thank you.
Thank you. The next question is from the line of Anand Dama from Emkay Global. Please go ahead.
Yeah, thank you for the opportunity. Is it possible for you to give some granularity in terms of the tech spend? How much usually goes for maintenance, how much is for the new age tech, and how much do you also capitalize our tech spend? Because I think beyond P&L, there is a lot of CapEx spend that you'll be doing on the capital tech spend, right? If you can give some granular details on that front.
Anand, we don't really break out our tech spends with that level of granularity. I think we put out two sets of numbers. One is that our tech spend as a percentage of our total expenditure is about 8%. That's one variable that we specifically call out from tech spends. When we compute this variable, we factor in the depreciation on CapEx that has been incurred for technology. The 8% is the all subsumed number. CapEx is the cash flow. The OpEx is reflected in depreciation, which is subsequently picked up.
You said 8%. How much this would be last year, in number to compare?
I gave a range to a question I answered earlier that for the current year it's in the 7.8%-8% range. It was lower last year. We have effectively said that our tech spends have grown by 40% on a year-on-year basis. The proportion or the percentage would be 9% or 8%.
Sure. One more thing about even in the rural books, we have seen very strong growth. What is happening over there? Which segments are we growing over there?
Puneet, let Munish answer it. Sorry, I forgot.
This is Munish. We had an excellent quarter in the rural book in quarter three FY 2022. Across all product lines we saw growth in disbursals and balance sheet. This was one of our strongest quarters. Seriously, year-on-year, we grew about 56%, and this growth came across all our segments, including farmer finance and gold loans, farm equipment finance and microfinance. We also saw growth coming through in the enterprise lending, which is a rural enterprise and the MSME lending in the rural markets. There also we saw substantial growth. There's one group we want to grow, and we want to also grow other revenue in this line of business. We expect the growth to continue in the coming quarter as well.
Sure. Thanks. Thank you.
Thank you. The next question is from the line of Sameer Bhise from Edelweiss Financial. Please go ahead.
Yeah. Hi. Thanks for the opportunity, and congrats on a good quarter. Just wanted to understand the growth on the SBB as well as the MSME books. Some of your larger peers also have reported strong numbers there. How is the market share shifting or what is driving this, like, secular growth towards some of the larger private names? Your sense there, is it just newer geographies or some material change in terms of the way these guys are being looked at by you?
On the small business banking, we are seeing newer clients also come through and the existing client looking at a full suite of solutions from the bank. The growth on this segment has been strong, and we also are seeing utilization pick up. This quarter we've also seen the business installment loan portfolio also pick up, and we are now spread across 145 locations, and most of the customers, almost 85%, have prime scores as per our internal scorecard.
On the SME side, we are seeing something similar. It's all about, you know, being in the market. We have been growing this. You know, we talked about, again, the transformation project with SME a couple of quarters back, and we are seeing the impact of that come through. We obviously, again, want to be very sure that we continue to operate within the risk guidelines we have made for ourselves, but opportunities lost. Yes, I think a decent proportion of this business could be coming from public sector banks. Let's also not run away from the fact that some of this business also comes from friendly competitor banks too.
Sometimes the customers are not happy with, you know, the facilities or the services they're receiving from the existing banks, and the policy is to come every bank says, not just us. If you are in front of the customer with the right transformation, you do get an opportunity to take over the facilities and limits of those customers also across both SME and business banking. That's pretty much a part of day-to-day blocking and tackling which happens in the multiple bank.
Sure. I think there's also a statement which says that it is one of the most profitable segments of the bank. I mean, any quantums you would want to mention, like in terms of degree versus a typical retail business? Not exact numbers, but-
These are high runoff businesses, as we call them, and we would like them to grow faster than the growth rate of the overall business. You know, it's easy to make that statement, but we need to do that within the risk guidelines. See, please, we have worked very hard to get where we are in terms of overall asset quality. We don't want to just give it away because we have to grow for growth's sake. Yes, the policies are there. Our market share advances is not large enough for us to really worry about whether it is possible to grow or not. I think those are the policies that exist. As long as the risk guidelines are maintained, we will go after every possible business that comes our way.
The runoff of these business is high, so we will try to grow it at a faster pace.
Sure. Sure.
The fact that these are PSL businesses make it significantly attractive for the bank to proceed.
Right. This is helpful. Thank you, and all the best.
Thank you. The next question is from the line of Alpesh Mehta from IIFL Securities. Please go ahead.
Hi, and congrats on the good set of numbers. I may have missed this, but I just wanted to check on a YOY basis, there have been some restatement on the balance sheet as well as the reported gross NPL. What is it regarding? Hello?
On a YOY basis, the restatement of the balance sheet would have been only on netting down of the leverage FCNRB deposits and loans. It is an accounting decision, we changed in quarter one of the year, and therefore we would have carried forward. I do not think we have restated anything on the GNPA. The balance sheet has been grossed down on the assets and liability side for the leveraged deposit product that the bank used to have.
Okay. Got it. Thank you so much.
Before we take the next question, I just want to address Nitin's question on what proportion was flow forward. Nitin, I guided you to slide 47. The INR 790 crores is a number net of recoveries. You should apply 61% to about INR 1,400 crores to get the flow forward number. Effectively, the entire loan loss charged to the P&L, and some more would be on account of flow forward. Just want to make sure that I register the correct denominator to multiply 61% with, to your question. Thank you.
Thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go ahead.
Thank you. Just one question. Puneet, I heard that you mentioned, you know, we did some reduction in fee income across some products. Would you clarify, you know, which products we incorporated this? Any long-term and short-term view that the management has which necessitated this step? For these specific products, do you now believe we are similar to comparable banks or lower? Yeah.
Nilanjan, thank you for your question. You would recollect that we are driving a franchise that is getting us closer to the customer and getting to be more customer-centric. What I called out earlier in my opening comments is that we periodically review charges, and as part of our charges scheduled review, we have optimized charges in favor of customers in order to build brand salience and customer centricity. We think it's the right thing to do. It is principally across our retail liability products. Like I said, it is a one-time correction that we think we are done with. A review process does internally take place by the management team periodically, but that is during the normal course.
Okay. Just from a clarity perspective, assuming the volume growth remained whatever it is, how much did we sacrifice roughly because of these changes?
We're not calling out that specific number. We're just saying that that effect already sits in the base fee number for the current quarter. Therefore, from here on, the volume effect should be positive if the transaction volumes improve from a customer standpoint.
Okay. Perfect. Thanks, Puneet.
Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Yeah. Hi, good evening, and congratulations for the quarter. A couple of questions. The first one, I'm just looking at slide 12, where you have given this advances mix by rate type. Now just clarifying a few things. That covers the entire loan book, right? 100% of the loan book.
Yes, Abhishek, that's correct.
The 34% which is repo linked could not have repriced upwards because the repo has not moved.
Abhishek, I'll let you draw that conclusion. Yes, the repo rate actually has not moved in the quarter.
Yeah. I'm just checking if there is any sort of period PM or anything else that you can change in those loans or contractually they are absolutely linked to the repo. That's what I wanted to check.
Abhishek, the way the product works, which is also within the API guideline, is there is a market rate which could be repo or any other market benchmark, and then there is a credit spread. The regulator as well as the market practices, if there is a material change in the underlying credit of the customer, banks do have a right to change the credit spreads. That's how the product is designed, and that's how the product is contracted and priced for.
Okay. Because what I'm really getting towards is, when I calculate the yield on advances, there is a 13 basis points quarter-over-quarter increase. Given that almost one-third of your book might be linked to the repo and hence wouldn't have repriced. Also, incremental book, if I look at, you know, there's more amount of corporate this quarter than last quarter. I'm just finding it difficult to reconcile an increase in yield on advances sequentially. That's what I was just trying to, you know, get my head around.
The yield on advances sequentially could have or actually have improved for the exchange effect, has improved for currency change effect. Those will be the two drivers, apart from the drivers that you are looking at from a yield improvement perspective.
Okay, never mind. I'll take it offline perhaps.
Sure.
My second question is basically on rural. Now, a lot of NBFCs have actually called out a bit of softness in rural demand and maybe, you know, some commentary by other industry players is also there. Where are you finding this growth? It's simply a base effect or you have some. I mean, there are some pockets of demand where, you know, some other competitors are unable to tap. Just wondering.
You know, our growth is coming on the back of three, four things. One is on the back of farming our existing set of customers a bit better in this, in the Bharat market. We've, as you know, we have called out a strategy on Bharat Banking separately. We are bringing on more inordinate amount of focus in going deeper into these markets and working with our existing set of customers with focus teams. That's one. Secondly, we are, we have come out with, we are building some new products and some new focus strategy on the enterprise side in these markets with the MSME and agri enterprises. That's where we're seeing growth.
Third, you know, it is a low base effect, but there is a large opportunity in this market, and we need to do a bit of a catch-up in this segment as in percentage of our overall asset strategy. As we move forward on the back of some new products, processes, branch distribution expansion, working with agri tech and fintech companies, and working on some digital models, we think that we'll be able to play at a much higher scale in this market.
Okay. Thank you so much.
Abhishek, to your question, since you referred to slide 12, part of the explanation for the yield expansion sits at the bottom right-hand table of slide 12. The five basis points of interest reversal lower will also play through the yields.
Yeah, Puneet, but I tried to calculate that actually. That's why I said I'll take it offline. It's coming to one basis point for me, so I'll probably check with you after the call.
Understood. Happy to work. Thank you.
Sure. Thank you.
Thank you very much. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Puneet Sharma for closing comments. Thank you and over to you, sir.
Thank you, Janice, for being such a gracious host. Thank you, ladies and gentlemen, for joining us this evening. It's been a pleasure. We hope we've been able to clarify questions that you had of us. We'd be very happy to engage with you if there are any follow-on questions that you would have. Wishing your families a New Year safe season and all the very best. Thank you. Good evening.
Thank you. On behalf of Axis Bank, thank you for joining us. You may now disconnect your lines.